How Long to Keep Financial Records and Documents

If you are like me, you have a mountain of paperwork from your stock transactions, mutual fund statements, credit card bills, and a host of other financial records and financial documents. But, now that you have collected so much, the real question is how long to keep financial records and documents? There are several lengths of time and factors that you should consider how long to keep financial records.

How Long To Keep Financial Records

Financial Records To Keep Forever…

There are several very important financial documents and records that you should keep forever. I personally keep these types of documents at home in a fireproof safe, but other people often choose to keep theirs in a safe deposit box at a bank. Financial records to keep forever:

Birth and death certificates

Adoption records

Citizenship records

Military records (DD 214, DA638, etc.)

Marriage and divorce records

Passports

Social Security Cards

Estate Plans: wills, living trusts, powers of attorney, etc.

Financial Records for Seven Years…

One rule of thumb is to keep most records that you use for the filing of your taxes for at least seven years. It’s been widely reported that the United States Internal Revenue Service (IRS) has seven years to reach back and audit you for most things unless there is fraud or you didn’t file your taxes at all. But, like most things…there’s a little more to it than that.

Financial Records To For The Short-Term

There are several financial documents that you may be holding onto for no reason. There are some items that break the trend typically for how long to keep financial records which can be discarded after a year or even earlier. For items such as your paycheck stubs and bank statements, you can typically shred these documents after receiving the year-end consolidated statement.

And, your old pay stubs can be shredded after you receive your year-end W-2. There are also financial documents that you should hold onto as long as you own the underlying financial product. For example, there is no need to continue holding onto paperwork for insurance policies that are no longer in place.

Receipts for items that are not essential to your taxes can also be shredded after they have posted and been reconciled to your credit card or bank statement. Also, do not forget to ensure that you are properly shredding these items with a good crosscut shredder, and you may also want to consider investing in identity theft protection from a company such as LifeLock.

My home office literally looks like my filing cabinets threw up. I have paperwork everywhere. My problem stems from not always knowing how long to keep financial records. But, following these simple rules can help you unclutter your financial life and your physical space as well.

What about you? Do you hold onto financial records long after you should shred them? I’d love to hear your comments below.

About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications about investing, retirement planning, and even how to find the best return on investment. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.

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Personally, I only receive electronic copies of most documents, and scan any others that come in hardcopy. I then create a pdf file for each year, broken down by month and organize all of the records electronically. This way, I don’t have to deal with the hassle of organizing, storing, sorting, or ourging papers, and I can simply put the files on a cd, backup drive and in the cloud just in case one gets damaged, I always have extra backups.

We keep our records for 7 years. It is law here in Canada. We have been working on scanning as much as we can to reduce clutter though and it is working quite well. However, sometimes originals still have to be kept which sucks.

If you file on time the IRS has 3 years to audit your tax return or to assess any additional tax liabilities. If you do not file a return the statue of limitations clock doesn’t start. This is why even drug dealers file a return. Also the IRS and the DOJ cannot share information.

I would suggest that one considers keeping documents for investment purchases made outside of a qualified plan until that specific investment is sold and and the transaction reported on the tax return vs. maintaining the documents for a specific period of time.

Although, perhaps with the new basis disclosing rules, this will not be quite as important on investments going forward.

Where it often does become important is when one switches brokerage firms – new firms often do not receive basis information.